Monday, August 8, 2022

Whether the deal to export grain from Ukraine will work and whether it will lower prices

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Despite cruise missiles hitting Odessa, Kyiv plans to send out ships full of wheat this week. The world is waiting with bated breath to see if it works

Months after the war in Ukraine and with fighting on multiple fronts, the Turkey-brokered deal to export the country’s grain to the world nonetheless appears to be on track.

After signing the plan to allow ships to leave Ukraine’s ports through the Black Sea under the close supervision of several parties on Friday in Istanbul, Kyiv is now awaiting its first cargo, which should come out of Chornomorsk port “within this week”. said Infrastructure Minister Yuriy Vaskov.

Much of Ukraine’s usual wheat crop is exported through ports near Odessa, and a cruise missile attack on the southwestern city quickly damaged confidence just a day after Russian, Turkish and Ukrainian officials signed the deal.

But Mr Vaskov said the ports of Odessa and Pivdennyi Chornomorsk would spring into action within two weeks.

The world is waiting to see if the plan – a bright spark of diplomacy in a dark hour for Europe – will materialize and help ease the cost of living pressures being felt from America to Zimbabwe.

On the subject of the cruise missile attack on Odessa, Russia has tried to get away with a technicality: the targets, although in a free Ukrainian city that serves as one of the world’s largest wheat export centers, “had nothing to do with the infrastructure that’s needed for export.” of grain,” Kremlin spokesman Dmitry Peskov said on Monday.

Ukraine said two rockets were shot down and two hit port infrastructure, which is extensive in Odessa, a specialized port city.

Ukrainian President Volodymyr Zelenskyy called the strike “barbaric”, but Kyiv nevertheless seems ready to go ahead.

This is a big open question that is plaguing even Ukraine itself. “No one knows Russia’s motives,” Taras Kachka, the country’s economy minister, told Politico last week.

Hunger is a powerful diplomatic tool, and Vladimir Putin has already encroached on countries less inclined to unquestioningly side with Western leadership and relying on Europe’s so-called granary for grain imports.

Macky Sall, Senegal’s president and current leader of the African Union, met with Mr Putin last month and issued a statement in which he “urged all partners to lift sanctions on wheat and fertilizers” and took an uncritical stance on the war , which surprised even some western observers .

Foreign Minister Sergei Lavrov followed that up with a four-nation tour of Africa, which on Sunday visited Egypt — the world’s biggest grain reporter — before continuing on to Ethiopia, Uganda and the Republic of Congo. In a statement, he praised “Africans’ balanced attitude to what is happening in and around Ukraine.”

Facilitating wheat exports from Ukraine is unlikely to bring in enough money for Kyiv to turn the tide of the war, since most of the Ukrainian armed forces’ most effective weapons are donated from the West anyway. It may be that Putin has calculated an advantage among the countries hardest hit by the cost of living crisis by being seen as the one to ease the pressure.

Asked why allowing exports is in Moscow’s interest, said Nikolay Petrov, a research fellow at Chatham House I that Russia’s potential benefits from the deal include “a) relaxing some sanctions related to the sale and transportation of grain and fertilizers, b) demonstrating its goodwill and perhaps Ukraine’s inability to complete the deal on its part.” , and c) to rejoice in the role of a gatekeeper informally recognized by the world”.

In theory, the strategy envisages more grain being supplied by the sixth largest producer in the world. Ukraine said it could export 60 million tons of grain over the next nine months under the deal, which is more than it normally delivers in a year, possibly due to the backlog in its silos.

But its success depends on a precarious deal standing in the face of provocations – like the Russian attack on Odessa – and even unintended obstacles. The “joint command center” in Istanbul will host officials from Ukraine, Russia, Turkey and the UN to oversee operations, track ships entering Turkish waters and inspect cargo. The potential for contradiction seems high.

And Ukraine is already frustrated that Russia may be exporting stolen grain from ports under its control, while Russia fears arms are being smuggled on grain ships to aid Ukraine’s self-defense.

“I would put the probability of it working at 50 percent, but it can change based on a number of factors,” Mr. Petrov said. “For Ukraine and Turkey, the implementation of the agreement itself will be a success; For Russia, in my opinion, it will not be so much about completing the deal as it is about not being blamed for the failure.”

To a large extent, they already have. Wheat is up around 15 percent year-on-year, which is a worrying drop for a staple relied on so much, but it’s down sharply from the March and May war spikes, and markets seem to be reckoning with it that the promised wheat will arrive.

“There are a whole host of practical issues, but if the market reacts and believes that the 20 million tons of wheat is now available to ship, then the market’s supply and demand will fundamentally change,” agricultural trader Cefetra’s Simon Wilcox told Farming Weekly. This means that “there is potential for further price decline” — with the caveat that they could “recover” if the deal falls through.

However, wheat alone would not be enough to overcome widespread inflation and the cost of living crisis altogether. The economic problems are multiple, with the price of energy contributing a large part to rising household bills, along with other shortages and price spikes along the supply chain, including Ukrainian and Russian products such as fertilizers and cooking oil.

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